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Chapter VII - Governing Boards and Why we Need Them?

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Made publicly available in the spirit of open access by its author, Noshir Dadrawala (CEO, Centre for Advancement of Philanthropy), and collaborators CAP and Forbes Marshall.

In India, boards include:

  1. Trustees in the case of a Charitable or Religious Trust

  2. Managing committee or governing council in the case of a Society, and

  3. Board of directors in the case of a nonprofit company

Boards are necessary from a legal and governance point of view.

  1. The funds, properties, and assets of the organisation vests in the board

  2. The onus of advancing the 'aims and objects' of the organisation is on the board

  3. Boards must not derive personal benefit from the organisation and their role is fiduciary

  4. Boards are jointly and severally responsible, hence duties and responsibilities should be shared as a team

  5. Boards are required to approve and sign the audited accounts

  6. Policy matters are approved by the board through process of periodic meetings and resolutions

Other responsibilities

  1. Provide leadership/vision

  2. Give the organisation a sense of direction

  3. Set standards of efficiency, accountability, and transparency

  4. Hold the organisation together

  5. Mobilise resources

  6. Build and nurture an ethical and value-based organisation

  7. Discourage exaggerated or misleading claims

  8. Provide the necessary 'check and balance'

Good boards

  1. Have reasonable understanding and interest in the work of the organisation

  2. Have commitment to the organisation's aims and objects

  3. Have reasonable intelligence and competence

  4. Members are individually and collectively respected in the community and by all stakeholders

  5. Have capacity for growth

  6. Are sensitive to change and new issues affecting the community

  7. Have abiility to work in concert with others

  8. Stand up to one's convictions

  9. Treat staff as partners

  10. Respect the right of other board members and staff to differ/disagree

  11. Dissent if necessary, but accept with grace the majority decision or step down

  12. Effectively mobilise and properly channelise resources

What to consider before joining an NPO governing board

Often friends, colleagues, or relatives already serving on a board or associated with a non-profit, request us to join the governing board. You may be given some vague idea about the work of the organisation and make it seem like a very manageable commitment (e.g. you just need to attend two or three meetings in a year and that is all).

You could save yourself and the non-profit from an inappropriate mismatch by taking a few simple analytical steps before committing to join the governing board.

How do you decide whether you will be the right fit or not? Is this something you really want to do and, most importantly, is the organisation credible enough for your commitment of time, talent, and treasure?

Ask why the organisation exists, and is it still true to its mission. Most non-profits are set up from a deep sense of passion for changing the world. The passion is rooted in the vision and mission of the organisation. Examine why the organisation exists. That passion with the organisation should not be for the programmes, but for the intended outcomes. Programmes evolve over time based on a wide variety of factors, but vision, mission, and core values must remain constant. Being passionate about the cause and mission is usually at the core of the organisation through whatever change may come. It forms the bedrock of commitment.

Learn more about the organisation's direction. A primary responsibility of the board is to provide strategic direction for the organisation. A related responsibility is achieving the strategic organisational goals through the staff the board hires, and works together with, to implement this plan. It is also important to understand how the board governs. In many organisations the board may have developed a Board Policy Manual a set of basic value statements or policies to guide board and staff decision making, a central repository for all board value-driven mandates. Ask yourself how effectively the board governs and how you will contribute to that role of governance without getting drawn into management, which is not really your role as a board member.

Governing Boards and Why we Need Them?

Here are some further key questions to ask yourself

Every board member is expected to contribute his or her 3Ts - Time, Talent, and Treasure, to the organisation. Hence it is important that every aspect is carefully considered before joining a board.

Do you have enough time to serve on a board?
The meetings may vary from monthly to twice or thrice a year. The more engaged the board, the more productive they could be.

Are you a good team player?
Boards need to collaborate and ensure cooperative action. Find out who it is you will be working with and what their priorities are.

Do you enjoy getting into the nitty-gritty of policy?
Boards should be macro-picture oriented, and not involve themselves in day-to-day matters. If you are a task-oriented person, maybe a volunteer role is more suited for you.

Do you feel comfortable fundraising and mobilising resources?
Almost all organisations struggle with fundraising; most staff do not have the bandwidth to mobilise resources, and few have the art. There will be no escape, so be sure you feel at ease with fundraising.

What are the roles and responsibilities of board members, and are you equipped for them?

Understand your specific role: what you are expected to do as an individual, and collectively as a board. Some boards follow an annual board assessment based on an objective standard of performance, so know how your performance will be evaluated.

If you have figured out the how and why and have decided to join, what are the compliance requirements you should look at before you leap?

  1. Documentation: Ask for, and carefully read, the organisation's charter (trust deed, MoA and AA), bylaws or policy documents (if any), last three years audited accounts, returns of the last three years filed with key regulatory authorities (Charity Commissioner, Income Tax, FCRA), annual budget, a strategic plan if there is one, and other organisational materials, including the website.

  2. Fiduciary Role: The role of a governing board member is fiduciary, which essentially means relating to the onerous responsibility to take care of someone else's (public) money in a manner consistent with law, the charter of the organisation and to the satisfaction of all stakeholders.

  3. Liability: If the organisation is a trust or a society, the board member's liability would be personal. However, even if it is a Section 8 company limited by guarantee, the board member should ensure that needless liabilities are not created, and generally gauge the compatibility of the governing board's risk taking appetite with your own. How well the governing board is equipped and ready to manage risks, liabilities and reputation is critical, especially if working on sensitive issues (e.g. with children, orphans).

  4. Conflict of Interest: Does the organisation have a clear policy on conflict of interest, and historically how well has the board executed or managed it? A conflict of interest arises when a person in a position of authority over an organisation, such as an officer, director, trustee, or key employee, may benefit (e.g., financially) from a decision he or she could make in such capacity, including indirect benefits such as to family members or organisations with which the person is closely associated. While most conflict-of-interest policies only address financial conflicts of interest, ideally it is both necessary and appropriate to require disclosure of affiliations that can give rise to conflict of interest. Therefore, the organisation's policy should define conflicts of interest to include affiliations as well as economic interests. The purpose of such disclosure is to provide the board with a meaningful opportunity to determine whether a conflict of interest exists. Complete, accurate disclosure gives the board the information they would need to fulfil their fiduciary obligations, and to make decisions that are in the organisation's best interests.
    To reiterate, one must always stay wary of liability both for the organisation and for oneself personally. As stated earlier, the liability of a Section 8 company is generally not transferred onto the directors. However, directors can be held personally liable for their acts under the Companies Act 2013 if there is a breach of fiduciary duty or instances of fraud, breach of trust, fraudulent misrepresentations, etc. A director must comply with certain fiduciary duties, and any lapse could make the director personally liable in an action for tort (i.e. a wrongful act or an infringement of a right, other than under contract, leading to legal liability).

  5. Term of Office: When there is no rotation, board members tend to become complacent. Members who serve for a fixed term tend to make the most of the time they serve on boards. One third of the board stepping down and two thirds remaining for providing continuity is generally a good practice. Also, one or two founder members or individuals who have the core expertise required, may remain as permanent members of the governing board or permanent invitees (with or without right to vote on matters of policy) or simply in an emeritus position to provide mentorship. Unless specifically provided in the charter, generally in a trust the trustees serve for life, unless they voluntarily resign. In a Society or Company there is usually a system of electing or rotating board members. Here again, if the General Body of members is the same or very small, there is little or no scope for rotation. The concept of rotation should be built into the charter of every organisation. In case of existing organisations, changes could be made in the Articles of Association by due process. For trusts, the appointment letter should clearly state the term of office, and the newly appointed board member should accept the same in writing under his/her signature.

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